Sanctions Round Up: Fourth Quarter 2016 and President Donald J. Trump

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On November 8, 2016, Donald John Trump was elected the 45th President of the United States. Following fiery criticism of the Obama Administration’s sanctions policies, including the Iran deal, the lifting of substantial parts of the Cuban sanctions program, and the imposition of sanctions on Russia, it is likely that the new President will usher in a new era of US policy as it relates to Russian, Iran, and Cuban sanctions, although the nature, scope, and timing of such changes, not to mention Congressional views on certain of them, is still unknown. In the meantime, during the fourth quarter of 2016 and continuing up to the eve of Inauguration Day in January, the Obama Administration continued to pursue its policies, lifting the economic and financial sanctions against Burma and Sudan, opening up the countries to Western markets while OFAC and other U.S. agencies continued to enforce other sanctions programs against banks and other financial institutions as well as traders and exporters.

Included in This Quarter’s Sanctions Round-Up:

President Donald J. Trump’s inauguration and its implications for US sanctions policy;

Termination of Burma-related sanctions;

President Obama and Europe’s continued support for Russian sanctions;

US Authorities continue to enforce sanctions through settlements;

Other notable developments.

Iran Nuclear Deal

On October 7, 2016, OFAC published a FAQ regarding whether a non-US person conducting due diligence on a potential Iranian counterparty need only to check the SDN list to have conducted sufficient due diligence. OFAC stated that, while screening the names of any Iranian counterparty against the SDN list is a necessary step for OFAC due diligence, it may not be sufficient. OFAC stated that due diligence conducted on Iranian counterparties should conform to the company’s overall risk-assessment and should be based on the best practices of the particular industry.

Additionally, on October 7, 2016, the Obama administration eased sanctions on Iran by loosening restrictions on the country’s ability to utilize US dollars and widening the universe of potential business partners for non-US investors in Iran. According to two FAQs published by OFAC, foreign financial institutions may process transactions denominated in U.S. dollars that involve Iran provided that such transactions or account activities do not involve a U.S. person or U.S. financial institution. Additionally, U.S. financial institutions can transact with non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships with Iranian financial institutions which are not included on the SDN list. Despite the loosening of sanctions against the country, the US maintains strict economic sanctions against the Islamic Revolutionary Guard Corps, a dominant force in Iran. The loosening of these sanctions comes in response to Iran’s claims that, despite the nuclear agreement, economic sanctions continue to strangle the country’s economy.

On December 1, 2016, the United States Senate unanimously voted to extend the President’s authority to impose sanctions on Iran. The vote is a largely symbolic move meant to keep pressure on the country to abide by the JCPOA. Since Implementation Day, many of the sanctions against Iran have been suspended. However, the Senate’s vote assures that US sanctions may be quickly reimposed if Iran falters in any of its obligations. Senator Gary Peters stated “[t]his sanctions regime is how we hold Iran accountable, strengthen our security and deter Iranian hostility towards our allies, especially the state of Israel…Diplomacy is always our preferred course of action, but it does not work in a vacuum. It only works if it is backed up with credible deterrence.”

On January 20, 2017, Donald J. Trump was inaugurated as the 45th President of the United States. During his campaign, then-candidate Trump explicitly denounced the nuclear deal and stated that it was bad for the United States, claimed that it was a “disaster,” and vowed to “dismantle” the entire deal if he were elected. Since the election, however, President-elect and now President Trump has said little on the matter, and during their confirmation hearings several of his nominees in national security positions, including Secretary of Defense General James Mattis, indicated that they did not envision terminating the agreement so much as vigilantly monitoring Iran’s compliance with it. On the other hand, President Trump’s choice to lead the C.I.A., Mike Pompeo, recently posted on Twitter, “I look forward to rolling back this disastrous deal with the world’s largest state sponsor of terrorism.” For more information on President Trump’s views on US sanctions policy, please see the below section: President Donald J. Trump and Sanctions Implications.

Russian-Related Sanctions for Q4 of 2016

On October 17, European Union foreign ministers met to discuss the ongoing crisis in Syria but declined to impose further sanctions against Russia for its behavior in the country. Representatives for the United States and Britain stated that they were considering measures against Syria and its supporters for the devastation in Aleppo. However, both countries stated that there was little appetite for military intervention. Arriving at the meeting, British Foreign Secretary Boris Johnson stated that the aim of the meeting was to “keep the pressure up on the Assad regime and on its puppeteers in the form of the Russian government, but also of course the Iranians and what we can do to bring pressure there.”

On October 20, Russian officials informed the UN that it would cease the bombing of eastern Aleppo for eleven hours a day over four days, but the proposal was described as insufficient. As an additional barrier, Russia stated that, to agree to the cease-fire, militants from Jabhat Fateh al-Sham must agree to leave the city and the Syrian government must guarantee that the local administration would remain in power. According to the Syrian Network for Human Rights, Russian and Syrian bombing of rebel-held areas of Aleppo has destroyed much of the infrastructure of Eastern Aleppo and has led to the deaths of approximately 450,000 people in 2016 alone.

On November 18, President Obama and several European leaders, including German Chancellor Angela Merkel, French President Francois Hollande, and the Prime Ministers from Britain, Italy, and Spain, unanimously agreed to keep in place sanctions against Russia for its intervention in Ukraine. Additionally, in the last quarter of 2016, the Obama administration designated an additional 49 individuals and entities to the SDN list, continuing to bear down on Russian sanctions despite the election of Donald Trump. These moves indicate a strong fear, both within the United States and internationally, that President Donald Trump will soften the US stance on Russia.

For more information on President Trump’s views on US sanctions policy, please see the below section: President Donald J. Trump and Sanctions Implications.

Sudan-Related Sanctions for Q4 of 2016

On October 31, President Obama extended economic sanctions against Sudan for another year, stating Khartoum’s policies remain an “extraordinary threat” to the national security of the United States. The economic sanctions against Sudan were originally put in place in 1997 as a response to the country’s support for Islamic extremist groups. Additionally, Sudan’s harsh treatment of ethnic minority rebels in Darfur has been cited as the purpose for establishing and extending these sanctions. The US embassy in Sudan claimed that this extension was “part of a routine, annual process” and that it “does not prejudice the ability of the President to provide sanctions relief at any point in the future.”

True to this sentiment, on January 13, 2017, OFAC issued an amendment to the Sudanese Sanctions Regulations authorizing all transactions prohibited by the SSR and unblocking all previously blocked property in which the government of Sudan has an interest. For the first time in nearly 20 years, Sudan will have the ability to trade extensively with the United States. However, the Executive Order which led to the removal of sanctions against Sudan, signed by President Obama, contains a six-month review period during which sanctions will be automatically reinstated if Sudan fails to fulfil its obligations.

Libyan-Related Sanctions for Q4 of 2016

On November 1, members of the European Union began considering asset freezes and travel sanctions against rival Libyan political leaders. Diplomats stated that they would consider sanctioning Libyan leaders if it was determined that they were deliberately blocking attempts to broker a settlement between the country’s warring factions. Western powers believe that an UN-brokered unity government is the only way to end the conflict for power after rebels overthrew Muammar Gaddafi. A diplomat, who requested anonymity, stated “[w]e are at a crunch time, we need the political leadership to take political decisions so the national accord can work. Those who prevent that from happening need to see there will be consequences.”

Syrian-Related Sanctions for Q4 of 2016

On October 27, the European Union Security Counsel added ten people to the list of individuals targeted by EU sanctions. These individuals, along with the other 207 listed, are identified as being responsible for the violent repression of the civilian population in Syria or as benefitting from the Assad administration. A majority of these newly-added individuals are high-ranking military and senior officials.

On November 14, the Council added 17 ministers and the Governor of the Central Bank of Syria to the list of those targeted by EU restrictive measures. These individuals are identified as being responsible for the violent repression against the civilian population of Syria, benefitting from the regime, or being associated with such persons. These additions to the sanctions lists bring the total number of persons subjected to the travel bans and asset freezes to 235 persons. In addition, 69 entities are targeted by EU asset freezes. In addition to the targeted regime, sanctions, which include an oil embargo, restrictions on certain investments, and a freeze of the assets of the Syrian central bank within the EU, are currently in place against Syria.

Burma-Related Sanctions for Q4 of 2016

On October 7, President Obama signed an Executive Order terminating the national emergency with respect to Burma and directing that the financial sanctions issued against the country be lifted. Adam Szubin, then Under Secretary for the US Department of the Treasury, stated, “lifting economic sanctions will further support trade and economic growth, and Treasury will continue to work with Burma to implement a robust anti-money laundering regime that will help to ensure the security of its financial system.” As a result of President Obama’s Executive Order, the sanctions on Burma administered by OFAC are no longer in effect. As such:

All individuals and entities blocked pursuant to the Burmese Sanctions Regulations (“BSR”) have been removed from OFAC’s SDN List;

All property and interest in property blocked pursuant to the BSR are unblocked;

All OFAC-administered restrictions under the Burma sanctions program regarding banking or financial transactions with Burma are no longer in effect; and

OFAC will remove the BSR from the Code of Federal Regulations.

Additionally, the Financial Crimes Enforcement Network (FinCEN) issued an administrative exception to its 2003 finding that Burma is a “jurisdiction of primary money laundering concern” under Section 311 of the US Patriot Act. Under this administrative exception, US financial institutions are permitted to continue providing correspondent services to Burmese banks, subject to the appropriate due diligence requirements. OFAC stated that it intends to leave the 2003 finding in place, subject to the administrative exception, until “Burma has made sufficient progress in addressing [its anti-money laundering] issues.”

US Authorities Continue to Enforce Sanctions through Settlements

On November 14, National Oilwell Varco, Inc. and its subsidiaries Dreco Energy Services, Ltd. and NOV Elmar agreed to pay $5,976,028 for apparent violations of the Cuban Assets Control Regulations and the Sudanese Sanctions Regulations. Specifically, Varco allegedly approved commission payments, totaling $2,630,091, to a UK-based entity that related to the sale and exportation of goods, directly or indirectly, to Iran. Separately, Dreco and Elmar engaged in transactions involving the sale of goods and services to Cuba. In reaching the settlement amount, OFAC considered that Varco received a Penalty Notice in the five years preceding the date of the earliest transaction giving rise to the apparent violations.

On January 12, 2017, Aban Offshore Limited agreed to pay $17,500 for apparent violations of the Iranian Transactions and Sanctions Regulations. Specifically, Aban allegedly placed an order, through a Singaporean subsidiary, for U.S. oil rig supplies with the intended purpose of re-exporting these supplies to the United Arab Emirates. In reaching the settlement amount, OFAC considered that Aban did not voluntarily self-disclose the apparent violation and that the violation constituted a non-egregious case.

On January 13, 2017, Toronto-Dominion Bank agreed to remit $516,105 to settle civil liability for 167 apparent violations of the Cuban Assets Control Regulations and the Iranian Sanctions Regulations. Specifically, TD Bank processed import-export letters of credit for its Canadian customers that the bank failed to screen for a nexus to individuals and entities included on the SDN list. Between August 14, 2007 and April 22, 2011, TD Bank processed 29 transactions totaling $1,156,181 to or through the United States.

President Donald J. Trump and Sanctions Implications

On November 8, Donald J. Trump was elected the 45th President of the United States. Throughout his campaign, Trump has made several statements which, if brought to fruition, would have significant implications for US sanctions policy. For example, as a candidate, Mr. Trump signaled that he may remove sanctions against Russia, “tear up” the Iran nuclear deal, and put Cuban sanctions back in place.

On January 16, 2017, then President-elect Trump told The Times of London that he will propose offering an end to Russian sanctions in return for a nuclear arms reduction deal. Such a nuclear arms control agreement would be the first arms agreement since the Strategic Arms Reduction Treaty was signed in 2010. In discussing the possibility of removing sanctions Trump stated, “[F]or one thing, I think nuclear weapons should be way down and reduced very substantially, that’s part of it. But Russia’s hurting very badly right now because of sanctions, but I think something can happen that a lot of people are gonna benefit.” In addition to his noted views on Russian sanctions, President Trump has faced sharp criticism from across the aisle for his selection of former-ExxonMobil CEO Rex Tillerson as Secretary of State. Critics of Tillerson note concern that, during his tenure as Exxon CEO, he built an apparently close relationship with Russian President Vladimir Putin, from brokering a deal with Russian oil conglomerate Rosneft in 1999 to receiving the Order of Friendship medal in 2013. Tilllerson’s nomination as Secretary of State was approved by the Senate Foreign Relations Committee on January 23, 2017.

Relating to the JCPOA signed between Iran and the United States in October 2015, President Trump has stated that it was a “bad deal” and that “[a] Trump presidency will force the Iranians back to the bargaining table to make a much better deal.” Despite Trump’s outcries against the nuclear deal, Iran President Hassan Rouhani stated on January 17, 2017 that “Mr. Trump says things like that he is not happy with the nuclear deal, or he calls it the worst agreement….These are more like slogans. I consider it unlikely that anything will happen in practice.” When asked about Rouhani’s comments, incoming White House chief of staff Reince Priebus stated that the deal was “on life-support.” Additionally, several of President Trump’s Cabinet nominees seemed to contradict the statements of the President during their Congressional hearings. Secretary of Defense General James Mattis called JCPOA an “imperfect arms control agreement” but stated that “[w]hen America gives its word we have to live up to it” and the nominee for Secretary of State, Rex Tillerson, stated “[o]ne of the vital roles for the State Department to play…has to be the pursuit of nuclear nonproliferation.”

Finally, President Trump has also taken aim at the thaw of relations between the United States and Cuba. In a November 28, 2016 tweet, then President-elect Trump stated that “[i]f Cuba is unwilling to make a better deal for the Cuban people…and the US as a whole, I will terminate deal.” This tweet came only two days after the death of Fidel Castro.

While President Trump has made various statements related to sanctions while seeking the Presidency, it is unclear the extent to which his campaign rhetoric will translate into real action on US sanctions policy.

Shearman & Sterling has long advised financial institutions and commercial businesses on the most complex sanctions issues. If you have any questions, please feel free to contact one of our partners or counsel.

Attorney Advertising. This memorandum is intended only as a general discussion of these issues. It should not be regarded as legal advice. We would be pleased to provide additional details or advice about specific situations if desired.